In Drautzburg and Uhlig's model of this, the length of time that the Zero Lower Bound is binding is a critical determinant of the effectiveness of this tool, and those authors conclude that the multiplier associated with this is less than one. Barro argued that this tool can never be effective since
In Drautzburg and Uhlig's model of this, the length of time that the Zero Lower Bound is binding is a critical determinant of the effectiveness of this tool, and those authors conclude that the multiplier associated with this is less than one. Barro argued that this tool can never be effective since a government that sells its debt to its own citizens, to be repaid by taxing them or their children, cannot add to the overall wealth in the economy. That argument is ostensibly drawn from David Ricardo, though he himself doubted its empirical validity. This tool was most famously advocated by Keynes as a means to smooth fluctuations in aggregate demand. For ten points, what is this field of economic policy related to government spending and taxation, the debate over which was reinvigorated by the American Recovery and Reinvestment Act?
In Drautzburg and Uhlig's model of this, the length of time that the Zero Lower Bound is binding is a critical determinant of the effectiveness of this tool, and those authors conclude that the multiplier associated with this is less than one.
{Fiscal} Policy